BALTIMORE (Stockpickr) -- 2014 has been a great year to be an investor. With two sessions to go in this calendar year, just buying and holding onto the big S&P 500 index would have paid out just over 13% gains. Considering the context of last year's nearly 30% gain in the S&P, that's one heck of a repeat performance.
The thing is, it's peanuts compared to what you would have made by focusing on just a single sector this past year. I'm talking about health care.
Health care stocks have been excellent performers in 2014, boosted by bullish demographics, disease scares and regulatory trends, and coupled with a market that's been rewarding companies that offer yield in this environment. The iShares Dow Jones US Healthcare ETF (IYH) is up almost 26% since last January, delivering nearly double the performance found in the rest of the broad market.
The health care sector is still showing some strong vitals as we head into 2015. Today, we're turning to the charts for a closer technical look at five health stocks that look ready for breakout gains.
For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, let's take a look at five technical setups worth trading now.
Quintiles Transnational Holdings
$7.7 billion pharmaceutical research contractor Quintiles Transnational Holdings (Q) is having a stellar year in 2014. Since the first trading session back in January, Quintiles has rallied just shy of 30%, even besting the rest of the sector's strong performance.
But don't worry if you've missed the rally so far. Q looks ready to kick off another leg of its rally this week thanks to a key price breakout that just triggered.
Quintiles just broke out of an ascending triangle setup, a bullish price pattern that's formed by horizontal resistance above shares at $59 and uptrending support to the downside. Basically, as Quintiles bounced in between those two technically important price levels, it was getting squeezed closer to a breakout above our $59 price ceiling. When that happened this month, it sent an important buy signal.
Relative strength is the side-indicator to watch in Q right now. Our relative strength line has been trending higher since the summer, an indication that Quintiles is outperforming the broad market. As long as that relative strength uptrend remains intact, Quintiles should continue to be a leader in 2015.
We're seeing the same price setup in shares of $4 billion biopharmaceutical company Receptos (RCPT) . Receptos has been a major success story this year, rocketing more than 337% since January on the heels of major successive positive drug trial results. The key difference in RCPT's chart is that the breakout signaling the next rally leg hasn't happened yet. Look for a breakout above $138 as your buy trigger.
Why all of that significance at that $138 level? It all comes down to buyers and sellers. Price patterns such as the ascending triangle are a good quick way to identify what's going on in the price action, but they're not the actual reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for RCPT's stock.
The $138 resistance level is a price where there has been an excess of supply of shares. In other words, it's a spot where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $138 so significant. The move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
Mid-cap hospital operator Tenet Healthcare (THC - Get Report) hasn't had such a straight-up trajectory this year. While it's still beating the S&P by a thick margin as I write, it's given back some considerable gains since its September highs. But that's more of a setback than a reversal -- THC looks close to breaking out this week. Here's how to trade it.
After correcting for the last several months, THC is forming a rounding bottom pattern. The rounding bottom looks just like it sounds -- it indicates a shift in control of shares from sellers to buyers. The breakout signal comes on a push through $53, the price level that's been an intermediate ceiling for shares since THC's price action bottomed in mid-November. Any close above $53 is good enough for a buy signal in this health stock.
Very short-term, momentum has added confirmation to THC's upside potential. Our momentum gauge, 14-day RSI, has been ticking higher at the same time that Tenet has been consolidating sideways. That bullish divergence means that buying pressure is building in shares.
Still, don't be early here. It's not a buy until $53 gets taken out.
The good news is that you don't have to be an expert technical trader to figure out what's going on in shares of Intuitive Surgical (ISRG - Get Report) , one of the most hotly followed names in 2014. The trading setup in shares of Intuitive is about as simple as they get. This $20 billion robotic surgery company has been a "buy the dips stock" for the last six months and change, and it makes sense to be a buyer as shares dip for a fourth time in that stretch.
Intuitive's price channel provides traders with a high-probability range for shares to trade within. In short, every test of that lower trend line has provided traders with a low-risk buying opportunity this year. That's what makes this month's bounce off of trend line support an ideal buying opportunity -- and now that the bounce has been confirmed, it's buyable.
Waiting for a bounce is important for two key reasons: It's the spot where shares have the furthest to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring ISRG can actually still catch a bid along that line before you put your money on shares.
I mentioned a moment ago that all trend lines eventually fail. Well, medical equipment stock Bruker (BRKR - Get Report) is the case in point. This stock has been bleeding all year long, shedding value as shares bounced their way lower in a textbook downtrending channel, the bearish opposite of the setup in ISRG. But shares crashed through resistance just last week, violating trend line resistance and putting an end to the trend.
Often, a broken bearish signal is just as buyable as an outright bullish price setup. That's why it makes sense to buy into the big change in trend in shares of BRKR.
Momentum in Bruker has quietly been ticking higher for the last five months now, forming a bullish divergence from price as shares based within their downtrending range. The actual breakout above the top of the channel is the buy signal through. More immediately, the fact that shares just managed to close slightly above their most recent swing high is a good indication that BRKR is initiating a change in trend here. I'd recommend keeping a protective stop just below $18 if you decide to buy shares today.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in the names mentioned.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory that returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.
Follow Jonas on Twitter @JonasElmerraji